Improving Analysts' Negative Earnings Forecasts

In contrast to positive earnings forecasts, the negative earnings forecasts of security analysts are grossly optimistic. We adjusted negative earnings forecasts downward by varying amounts and evaluated forecast performance according to (1) forecast accuracy relative to the consensus, (2) the freque...

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Bibliographic Details
Published in:Financial analysts journal 1999-05, Vol.55 (3), p.48-56
Main Authors: Butler, Kirt C., Hakan Saraoglu
Format: Article
Language:English
Subjects:
Accuracy
Analytical forecasting
Bias
Business structures
Earnings
Earnings forecasting
Earnings per share
Financial analysis
Financial economics
Forecasting standards
Forecasting techniques
Forecasts
Investment strategies
Managers
Price level changes
Probabilities
Probability
Probability forecasts
Quadrants
Securities issues
Stock prices
Studies
Valuation
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Summary:In contrast to positive earnings forecasts, the negative earnings forecasts of security analysts are grossly optimistic. We adjusted negative earnings forecasts downward by varying amounts and evaluated forecast performance according to (1) forecast accuracy relative to the consensus, (2) the frequency of being closer to actual earnings than the consensus, and (3) the frequency with which adjusted forecasts underestimate actual earnings, thereby jeopardizing the analyst's relations with corporate managers. Relative forecast accuracy and the probability of beating the consensus are improved, without an inordinate increase in the probability of underestimating earnings, by adjusting negative forecasts downward by a small amount.
ISSN:0015-198X
1938-3312
DOI:10.2469/faj.v55.n3.2271